Internet security and performance expert Cloudflare (NYSE:NET) Earnings expectations for the first quarter are better than expected, but investors are concerned that the company’s growth rate is slowing. Shares of Cloudflare were down 17% as of 12:15 p.m. ET on guidance that wasn’t as robust as some had hoped.
Growth slows down
Cloudflare is concerned with improving the security and performance of websites and cloud connections. The company earned $0.16 per share on revenue of $378.6 million in the first quarter, beating Wall Street expectations for earnings of $0.13 per share on revenue of $373 million.
But the company’s expectations for the coming quarters raised questions among investors. Cloudflare expects second-quarter revenue to be between $393.5 million and $394.5 million and full-year revenue to be between $1.648 billion and $1.652 billion. That is within Wall Street expectations, but the so-called ‘whisper figures’ from unofficial expectations were much higher.
Even if the company hits its high revenue targets, it would still imply some slowdown. Cloudflare expects revenue growth of about 27% in 2024, well below the compound annual growth rate of 41% since 2021.
Is Cloudflare stock a buy after its recent earnings report?
There’s nothing wrong with Cloudflare’s business. The company said the number of paying customers rose 17% year over year and the number of businesses spending at least $100,000 annually on its services grew 33%.
The issue is the rate of growth and whether any slowdown reflects short-term macroeconomic uncertainty or a longer-term problem at Cloudflare.
Investors won’t know for sure for another few quarters. But at least the questions take some of the starch out of Cloudflare’s sky-high valuation, earned during a period when the company consistently exceeded the targets Wall Street set for it.
Current holders have no reason to panic sell due to this loss, but those interested in buying should proceed with caution until more is known about what the coming quarters will look like for Cloudflare.
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Lou Whiteman has positions in Cloudflare. The Motley Fool holds positions in and recommends Cloudflare. The Motley Fool has a disclosure policy.
Why Cloudflare Investors Are Facing Stormy Weather Today was originally published by The Motley Fool
